Barclays to launch first ETF in China

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Shanghai, Nov 11: Barclays will launch the first exchange-traded fund to invest in China’s $460 billion markets in Hong Kong next week, a senior executive said on Thursday, prising open a window into a massive but over-priced and murky market.

Barclays’ fund will buy A shares listed in Shanghai or Shenzhen that are available only to the largest foreign institutions, said Joseph Ho, North Asia regional director for the British bank’s asset management arm, Barclays Global Investors.

Most global equity investors latch onto growth in China, the world’s seventh-largest economy, via corporations listed in Hong Kong, New York or other exchanges. But the A-share market could prove a better barometer of the country’s expansion, Mr Ho argued.

It is home to Asia’s top oil refiner, Sinopec Corp, Three Gorges Dam operator Yangtze Power Co Ltd, and the world’s sixth-largest steel maker, Baoshan Iron and Steel Corp.

“The reality is that, other than a privileged few, nobody can gain access to A shares outside of China,” said Mr Ho. “For 99.9% of investors outside China, hopefully this product will provide them with very easy means to gain access.”

But the market has given some investors pause. A spate of scandals this year, including the unravelling of once-high-flying private firm Delong and its listed firms, has thrown a spotlight on poor corporate governance.

Domestic stocks are also much more expensive than their peers in Asia, trading at about 26 times earnings on average, well above the average 15 in Hong Kong. Mr Ho dismissed worries now was a bad time to buy into A shares. The Shanghai composite index has shed a quarter of its value since mid-April, hit by official credit curbs.

“Moving forward, it’s going to be the domestic companies that are providing the driving force,” he said. “They are the largest part of the market,” he added.

With 70% of the market value of Chinese companies listed worldwide, investing in the home-grown market was the most accurate way of betting on China’s economic success, Mr Ho argued — even if only a third of that capitalisation is freely floated.